May 09, 2007
Going In and Out the Windows: Weaving a Web of Political Accountability
by Anne Moore Odell

The Center for Political Accountability's new report "Open Windows" calls on companies for greater
transparency and accountability in political giving and outlines a model of political
accountability.

Few would argue that political spending by companies is strengthening our democracy. Regulation of
corporate political spending is weak and few companies have taken it upon themselves to construct
codes of conduct around political spending, says a new report from the Center for Political
Accountability (CPA). The
report examines the political spending of S&P 100 companies and offers an eleven-point model code
that creates transparency and responsibility for political spending.

CPA’s report,
“Open Windows: How Company Codes of Conduct Regulate Political Spending and a Model Code to Protect
Company Interests and Shareholder Value,” was recently released amid a climate of growing
shareholder concern over political spending.

During the 2007 proxy season there were 43
shareholder resolutions regarding this issue. The As You Sow Foundation’s yearly proxy-voting guide lists
political donations as one of four “Hot Issues” this proxy season alongside global warming, Trojan
Horse proposals and toxic products.

Support is growing for proposals that call on
companies to change the way they handle political spending, reports CPA Co-Director Bruce Freed.
During the 2004 and 2005 proxy seasons, support for political accountability proposals averaged 9%.
In 2006, votes in support of company disclosure of political giving jumped to an average of 21%.
This year CPA expects support to be even higher.

“Open Windows” is based on a CPA survey
of companies that was carried out between June 2006 and January 2007. The report has some stark
findings on political spending policies at S&P 100 companies. For example, although 81 companies do
mention corporate political spending in their code of conducts, none have comprehensive policies
that guarantee transparency and only 34 companies require board oversight of political giving.

"Accountability and board oversight are very important," Freed said. "It's important that there
be an entity within the company that will ask questions, review the company's political spending
and make sure that management is held accountable. The risk is the company treats political money
as funny money and looks no further than the initial recipient in tracking where their money ends
up. Companies' donations can undercut or work against what the company previously stated to be
their stance. Board oversight could help curb this practice," he added.

CPA’s report looks
to align companies’ stated positions on issues and their political giving: "Companies can agree to
political disclosure and accountability and then not follow through by making sure that their
political spending aligns with company policies and practices. This is important for stakeholders
in the SRI community who have an interest in company political spending not undercutting agreements
that they have reached with companies,” Freed told Socialfunds.com. “This could be the case with
drug pricing issues or diversity policies where companies agree to one thing and then engage in
political spending that supports candidates or groups with the opposite positions."

The
report states that codes of political conduct set basic standards for “employee performance and
conduct and to create a culture of accountability and integrity that employees are expected to
participate in. The code of conduct therefore serves as a general guidebook for all employees on
all issues that affect their performance and the company’s interests.”

One area of growing
concern for people calling for transparency with political giving is the power of trade
associations and trade associations’ political activities, including political giving and lobbying.
“Companies need to ask trade associations where the money is going and press them for greater
accountability," Freed stated.

“It is a several step process to find out how trade
associations are spending dues. Companies have to say, ‘we pay you dues and we want to know how you
are using our dues money,’” Freed concluded. The CPA covered the role of trade associations in
their 2006 report “Hidden Rivers.”

Although the CPA suggests that all political
contributions be made though company PACs, the CPA has developed an in-depth model code on
political spending which acts as a guide to safeguard shareholders and the company. The CPA created
the model using current best practices, legal standards, and company codes.

The first
point of the model is that “political spending shall reflect the company’s interests and not those
of its individual officers or directors.” Public disclosure of money spent on all political
activities, ideally as regular reports available on-line, is the second point of the model conduct.

Freed explained, "Companies need an internal method of accountability and they need to
produce an annual report of adherence to the company's code of conduct on political spending. This
transparency ensures that the code of conduct will not just be window dressing. An annual report
lets the shareholders measure the company's conduct and let's them raise questions, if need be."

The model also covers in-kind contributions, soft money contributions and dues made to
trade associations and other tax-exempt organizations. Prior written approval of corporate
political giving from a company’s legal department or general counsel is point six of the model
code. Another area the model covers is the protection of employees from the spoken or unspoken
pressure to make personal political contributions in line with corporate giving.

CPA’s
report includes an Appendix that lists the S&P 100 Companies’ Conduct and Political Spending
Policies with URLs that link directly to the companies.

Seventeen of the S&P 100 companies
do require public disclosure of their political contributions made with corporate funds. These
companies are Abbott Laboratories, American Electric Power, Amgen, Bristol-Myers Squibb, Coca-Cola,
General Dynamics, General Electric, Hewlett-Packard, Home Depot, Johnson & Johnson, McDonalds,
Merck, Morgan Stanley, PepsiCo, Pfizer, Southern, and Verizon Communications.

Verizon
Communications faced a 2005 shareholder resolution filed by Domini Social Investments that
requested semi-annual reports disclosing the company’s policies and procedures for both direct and
indirect political contributions made with corporate funds. This vote received around 15% support.
Since that time, Verizon has created a Code of Conduct on Corporate Political Giving that is
internal to the company and wasn’t available for the media.

Some companies are moving
toward stopping all political contributions although Freed said no company has agreed to stop all
political spending as a result of the effort of the Center and its partners. CPA report states that
eleven companies have language that seems to prohibit political contributions made with corporate
funds. The ten that include an apparent prohibition in their codes of conduct are Allegheny
Technologies, Avon Products, Black & Decker, Colgate-Palmolive, IBM, Lucent Technologies,
OfficeMax, RadioShack, Sara Lee and Schlumberger Ltd. In 2002, BP created a policy to not make any
corporate political contributions, although employees can still give through the company PAC.